Fannie Mae posts $2.19b Q1 net loss

Fannie Mae, the largest US mortgage-finance company, reported a wider loss than analysts estimated and said it will cut its dividend and raise $6 billion in capital to help overcome the worst housing slump since the Great Depression.

The Washington-based company tumbled as much as 12 percent in early trading and said its credit market losses will be worse next year than in 2008. The first-quarter net loss was $2.19 billion, or $2.57 a share, compared with a profit a year earlier. Analysts had anticipated a loss of 64 cents a share, the average of 12 estimates from a Bloomberg survey.

Fannie Mae and smaller rival Freddie Mac may each need as much as $15 billion in capital to cope with the delinquencies and foreclosures that pushed their shares down more than 50 percent in the past year. Fannie Mae was able to narrow its loss from the combined $5 billion recorded for the third and fourth quarters partly by raising fees, and seeking out safer mortgage purchases.

Financial firms have raised more than $234 billion as losses and writedowns at the world's biggest banks exceed $318 billion. Washington-based Fannie Mae arranged to sell $7 billion of preferred stock in December. McLean, Virginia-based Freddie Mac issued $6 billion a month earlier.

"Fannie has taken steps to mitigate some of the mark-to- market charges that whipsawed results in recent quarters," Morgan Stanley analyst Kenneth Posner wrote in a report. "The worst of these marks should be behind us."

Raising money

Fannie Mae dropped $3.27, or 12 percent, to $25.02 in early New York Stock Exchange trading. The shares have plunged about 54 percent in the past year. Freddie Mac, down 62 percent, fell $2.02, or 8.6 percent, to $23.50.

Congress created Fannie Mae and Freddie Mac to increase mortgage financing and provide market stability. The companies, which own or guarantee 40 percent of the $12 trillion in US home loans, profit by holding mortgage assets that yield more than their debt costs, and from fees charged to guarantee bonds they create out of loans.

Fannie Mae Chief Executive Officer Daniel Mudd, 49, and Freddie Mac CEO Richard Syron, 64, agreed in March to raise capital after the Office of Federal Housing Enterprise Oversight allowed the companies to add more assets in an effort to pump cash into the housing market. Ofheo Director James Lockhart said that month the companies may need $10 billion each.

Goldman Sachs Group Inc analysts led by James Fotheringham in New York say they will probably raise $2 billion to $5 billion each. Goldman advises investors to "sell" the stock. Posner said Fannie Mae will likely try to sell $4 billion in equity. Posner is telling investors in financial companies to buy shares.

Paul Miller, a Friedman, Billings, Ramsey & Co analyst in Arlington, Virginia, said the companies may raise $10 billion to $15 billion each and rates the shares "underperform".

Ofheo lifted limits on the size of Fannie Mae's and Freddie Mac's investment portfolios this year, ending more than two years of restrictions after an accounting scandal forced the companies to restate more than $11 billion of earnings. Lockhart said at the time the companies are needed to bolster the mortgage market.

Agencies

(China Daily 05/07/2008 page17)